Dave Ramsey’s Baby Steps: The Better Version

“Dave Ramsey – that guy is extreme, man! He wants you to sell your extra cars and pay off your leases and stuff…”

As a personal finance blogger who isn’t always open about the fact that he is a personal finance blogger to new acquaintances, I occasionally come across gems like this about personal finance gurus like Dave Ramsey and Suze Orman being extreme.

The result is that I’ve almost entirely bitten my tongue in half.

Of course, even my loyal readers think I’m a bit extreme at times. I once received an unintended “reply” to one of my email updates instead of a “forward”, where the sender made the comment,

“You might find this email (and his website) interesting. This is a 20-something yr. old guy who writes a lot of good articles. I will have to admit he does over-do the cheap-skate business sometimes…”

There we go again with that cheapskate name-calling. Seriously though, one of my prouder moments as a personal finance blogger.

But this post isn’t about me, it’s about the de-facto face of personal finance, Dave Ramsey. Speaking of that face…awwww… look at it! Isn’t he cute?! A little scruff, sport jacket, the hip bendy, frame-less professor glasses, and a smile squint so hearty that it begets an instant man-crush… snap out of it, Miller!!!

Who is Dave Ramsey?

He has a syndicated radio show on over 500 stations, a plethora of books, a TV show on Fox Business, Sean-Connery good looks, and all kinds of high priced online courses and seminars that you can find out more about at his popular website, Daveramsey.com.

He’s made millions preaching his 7 baby steps. So many millions, in fact, it allowed him to buy this 13,307 square foot compound, valued at around $10 million – twice that of the home of his neighbor, LeAnn Rimes. His 1,454 square foot garage is bigger than my entire home.

Best part? His reported $1,285 monthly electric bill almost matches the combined TOTAL living expenses for my wife and I. An environmental steward, he is not.

Dave and I have a bit of a history (I’ve written about him once and he has no idea who I am). The fifth post ever on 20somethingfinance (and one of the most popular to this day) was a disagreement with Dave Ramsey’s view on credit cards, which I think is short-sighted and actually a bit extreme.

Dave Ramsey’s Baby Steps

Just about everything Dave Ramsey preaches comes down to his 7 baby steps.

So, I thought I’d highlight each of the mega personal finance icon’s steps and my slightly/vastly more extreme versions (and in my opinion, more universal and enhanced versions).

First, here’s an overview of Dave Ramsey’s baby steps:

Save $1,000 cash in a beginner emergency fund

Use the debt snowball to pay off all your debt but the house

Set up a fully funded emergency fund of 3 to 6 months of expenses

Invest 15% of your household income into retirement

Start saving for college

Pay off your home early

Build wealth and give generously

While I can think of a lot worse plans than this, you must remember this when it comes to Dave Ramsey – his incredible success with middle America is largely driven by his acceptability and appeal to the masses.

Of course, if you’re going to buy $10M homes like Dave Ramsey, or maybe just settle for financial independence and a tiny home that’s paid off, you’re going to have to do better than average.

Here’s my take on each of Ramsey’s baby steps and how you can do a little bit better.

1. Save $1,000 cash in a beginner emergency fund

I agree that establishing an emergency fund should be a priority. However, $1,000 is very low. Most major auto repairs will cost you more than that. Any reasonably set home insurance deductible will cost you more than that. The goal is to avoid debt or running out of money when emergency strikes.

#3 calls for an expansion of that emergency fund, but I’d plan on having $3,000 in emergency savings before moving on to #2.

2. Use the debt snowball to pay off all your debt but the house

If you’re not sure what the “debt snowball” is, Ramsey suggests paying off your smallest debts first, regardless of interest rate. His reasoning is stated as this, “The point of the debt snowball is simply this: You need some quick wins in order to stay pumped up about getting out of debt!”

I’m a numbers guy. Unless we’re talking about a huge difference in debt balances (i.e. $500 versus $20,000), I think it makes the most sense to pay off your highest interest debts first. Figure out the maximum you can put towards your debts and put it all towards the highest interest debt. After that debt is paid off, go to the second highest interest debt, and so on. This will allow you to save money on debt interest EVERY MONTH until you are completely paid off.

3. Set up a fully funded emergency fund of 3 to 6 months of expenses

12 months should be the new standard for emergency funds, with 6 months being the absolute minimum.

Dave goes on to say, “Keep these savings in a money market account. Remember, this stash of money is not an investment”. I completely disagree. Invest those funds in something conservative like a bond ETF (bonus points if you make it a commission-free ETF) so that inflation doesn’t eat at your balance. If the market tanks and your balance drops below 9 months, look at it as a buy opportunity, and replenish it. If the market goes up, you’ve just increased your emergency fund.

Dave does not mention where you should invest or how. Why would you put any money into a Roth IRA, for example, if you have not first completely absorbed your employers 401K match? That is free money you are leaving on the table.

Dave doesn’t get in to specifics on how much you should save for college, what percentage of your kids college you should pay for, or any other particulars. It’s just assumed that you should save for your kids college (because everyone goes to college) and that you should pay for it.

I’ll call this one incomplete. My personal view is that college isn’t right for everyone. And for those who it is a good fit for, they should pay at least half to learn personal responsibility.

6. Pay off your home

More assumptions. Not everyone should own a home. If you do, paying it off is a great thing (if interest rates are modest or high). And should this step come after funding your children’s college? Doing so increases the amount of interest you’ve paid significantly.

100 Comments

Mike

I think there needs to be a pre-baby step. Step 0. Add up all monthly expenses, and see what can be trimmed to fund baby step 1 of creating the emergency fund. A lot of the Dave Ramsey followers don’t even have a monthly budget when they first get started, if the money is there, they spend it.

I disagree with baby step 6. I think the money could be better used elsewhere than paying off a house early. A house payment, with a fixed interest rate is a fixed payment, with a continuously decreasing loan balance. It is a good way to fight inflation. I either have to rent or buy shelter, that is the only two choices. If a person is renting for 30 years the monthly payment is always going to increase with inflation.

Baby step 5 needs an asterisk. *If you have no children, invest as much as possible into your own further education or retirement.

I totally agree that cutting unnecessary expenses is the first step to building wealth. Many people focus on paying “debt” but they don’t pay attention to the $100+ per month for their cell phone and $500 per month eating at restaurants. Cutting these revolving expenses is the easiest way to generate available money for emergency savings.

How sad that you people just don’t get it and keep hitting your head against the wall!
The entire point of what Dave teaches is to feel “secure” and be debt free! That’s it. There is nothing more to it. You people that disagree with Dave about baby step six and paying off your home early just don’t get it. Of course you could take that money and invest it in something with greater returns while you keep paying your mortgage. But then your not out of debt which is the whole point. Dave says walking on the grass in your “paid off” house is a “priceless” feeling that can’t be matched.
Don’t you want to own your home and say and feel and know you actually own something? I got news for all you to smart for Dave’s advice people. If you have a mortgage on your home, not matter how small or large, you don’t own anything. The bank owns that home and you are a renter. You own nothing. Pay it off and quit trying to be some investing expert going against Dave’s advice.
This reminds me of the recovering alcoholics who think its ok to have just “one drink once in a while. Its not ok. Pay off the home and don’t have “one” drink.

As long as there are property taxes, you’ll NEVER own the grass or any other part of your yard/home. As soon as you stop paying taxes, the government will step in and show you who REALLY owns the land and everything on it.

Not if you are over 65 and live in Texas and don’t have HOA. In Texas, if you are over 65 and file an over 65 exemption, you can’t lose your home for non payment of property taxes. you can lose it for non payment on a mortgage or in some cases HOA fees, but not non payment of property taxes.

Mike you obviously are ignorant with money. When you pay someone interest for thirty years you lose 10’s to 100’s of thousands of dollars for the privledge of being in debt for 15-30 years. You are a slave when you owe someone something. But we all learn in our own special way in time… Good luck with your plan!! You will need it.

No, I’d say the jury is still out, because you’re only looking at half the question: what is return with the use of that capital? Mike thinks he can get a better return than paying off his mortgage – more power to him. But if he spends it on a vacation, then yes, he would have been better to pay down the mortgage. Ex: I have a $170k mortgage balance, recently refi’d 30yrs at 2.7%, but have $250k in tax favored investment accounts (Roth IRA, 529, etc), and $75k in a small business bank account. Under your suggestion, Tanni, I should pay off the mtg, so I’m not paying thousands of $ of interest, right? ~2% (after-mtg tax ded) return is my investment break-even, and I think that is a very low bar. Bottom-line: to make a judgement, you have to answer what risk/return are you expecting w those funds vs the “guaranteed” return of investing in your mortgage note.

I think that it all depends on your situation. My wife and I have looked at both options of Dave’s plan of investing 15% towards retirement, saving for our sons’ college @ $2,000/year/child and throwing everything else we have at paying off our house, or paying the minimum amount on our house, saving for our sons’ college @ $2,000/year/child, and investing the rest in our account for retirement, and the number came out to be within less than $3,000 difference using the exact same interest rates, time frame, difference in amount we would be paying in mortgage interest, etc. $3,000 between 2 amounts exceeding $15M. When it came down to it, the freedom of being 100% completely debt free by the time we’re 32 years old won!

Genius, why do you think DR put investing for retirement (#4) above paying off the house (#6)? Even he knows that in the long run you’ll make more in diversified mutual funds than you will save by paying off your house first.

Much of the reason for paying off a house more slowly has nothing to do with the rate of return. A mortgage forces the owner to not spend that money other ways.

Consider the extreme case of putting your money in the mattress every month for years on end. Due to inflation, when you go to use that money it will have less value than when you stored it away, but it will have significantly more value than the zero you would have if that same money was spent going out to eat, going on vacation, … This is the same thing as people who paid a lot for their homes having a lot of equity for retirement, even though it is less value than they would have with a small house and a larger retirement investment, because these people would not have put the difference into retirement, but rather would have spent it.

On the other hand, if the house is paid off sooner, then in case of emergency a paid off house means a lower required cash flow every month.

I am always looking for ways to save money. Unfortunately tips people usually give are things like cutting luxuries such as cable, eating out just once a week.. ect ( when for us its more like twice a year, so eating out once a week would increase our spending ;p we also do not have cable, we don’t rent movies, once a week i get a code for a free rental from red box, i think we use it once a month.) We have nothing left to cut out, but we don’t have the “need” to do so more just my eagerness to see out savings grow. Now if only I could get my husband to stop buying books on the internet. (in his defense most of them are very useful to his degree and he finds great deals, he just found a book that sells in the discount book store here “Text Books For Less” for $100 he paid $15 for what was to be a used book and it came to us looking brand new.) okay off topic sorry

As far as paying off your home quickly:
Here we go again with the “some debt is good” argument. If you were to say some debt is acceptable, you can probably make that case. To suggest that debt is preferable over no-debt is silly.

Yes, you may be able to beat the “spread” on paying mortgage interest versus what you can earn elsewhere, but you fail to factor in the risk involved. How much are you willing to risk for a couple of points of interest (assuming your investment goes perfectly?)

People that choose to pay off the house early are removing the risk involved in having a mortgage sooner, and willing to give up the potential earnings to do it. If your rate is 3%, then you are effecitevly “earning” about 3% on the money you use to pay off early. That is a guaranteed rate of return, with zero risk of losing that capital, and zero risk of your rate of return going down.

If you could earn a guaranteed rate of 6% investing somewhere else, with ZERO risk of losing principle, and ZERO risk of the rate of return going down, you still have to factor in the risk that you’ll lose your income and not be able to pay the mortgage. Death, Disability, layoffs, other possibilities exist as well that could reduce or eliminate your income.

It’s your money to risk, but suggesting that your way is better is a very subjective thing. Your plan looks good on paper, until life gets in the way.

Great point, Mark! Paying down your mortgage is like getting a risk-free 3.5% (or whatever) return on that money. However its actually a slightly smaller return, when you figure in the amount your taxes would have decreased if you had paid more mortgage interest.
But even still – paying down your mortgage after you have 6+ months income saved is always a good idea in my opinion.

Hi, Rick. Its always appropriate to CONSIDER paying down the mortgage – but like Mark said, risk and other factors have to be considered – a blanket judgment can’t be made.
I mentioned further down in this thread, I have ~40% equity in my house @2.7% rate, and have ROTH and other tax favored accounts that can more than pay off the balance. I would like to see rationale that it would be better to pay off mtg by liquidating those accounts, because I don’t see it – doesnt even seem to be a close call (75/25 stock/bond mix / age 38)

If this is still about what Dave Ramsey recommends, he absolutely does not encourage people to liquidate retirement or college accounts unless they’re facing foreclosure or similar dire financial straits.

Note the baby steps specifically say that paying off the home comes AFTER having a healthy emergency fund, putting away 15% of income towards retirement and funding kids’ college. Beyond that Dave recommends putting money into paying off a home before going into the stock market (above retirement) or leaving money (above the emergency fund) sitting in savings or spending it on doo dads.

So he wouldn’t recommend moving any of your tax-favored money to pay off your house. As for the business account if that money is for a business, that’s a separate ball-game. The business also needs an operating cushion. And you haven’t mentioned an emergency fund. If your income is $75k then your emergency fund would be $32.5k. If it’s $150k then that $75k would be your emergency fund.

Let’s say your income is at $75k and you want to keep a 12 month emergency fund instead of a 6 month? Probably not a big deal because $32.5k is probably not going to be the deciding factor on whether or not you pay off your house if you still have 60% to pay off. What you do with your next two year’s income is going to be the deciding factor on whether you pay down your mortage. When and if there’s only $32.5k standing between you and being debt-free you can always reconsider.

My son is 10 months old now. I think that my wife and I are on the correct financial path and have succeeded with most of these steps.

The college funding part is the tough one for us. Right now, we are affording to save approximately 10% of our income as I have recently started a new business and have had to go through some savings. Income is not where we want it, but I am still managing 10% investment.

I do like what you said about paying for 1/2 college tuition. You make a good point about teaching responsibility and placing a value on the education received. I had my entire education paid for thankfully, however, I’m not sure if that was a good thing now that I look back.

Also noted that the article referenced only gives data on median net worth, not average net worth. These are 2 different numbers. My understanding is that the more extreme outliers (trust fund babies, etc) would be on the high side making the average net worth even higher than the listed median net worth.

Median does not tell you a whole lot. Also if we were to look at a real average, it would be useful to know if negative net worths were used, or simply zero for those with no real assets. With SO many people underwater on their homes, It would make a difference. Negative net worth will certainly bring down the average, versus counting them as zero, but it would have ZERO effect on the median.

Also, if every person whose net worth over $75,000 was suddenly given 5 million dollars, the median net worth would not increase at all. The average would certainly increase.

The only point is that the median number is virtually meaningless. It only tells you the value of the data point in the center of the sample. It tells you nothing about any of the numbers below it, and nothing of the numbers above it.

Just after my husband and I where married we started an “e-fund”
it has not exactly stayed that way. But things did happen where we needed the money, nothing life or death, but bills and such, I was whats the PC term again “in a transition period” for a few months. Now we are building it again. But its slow going and its tempting to put more into the “fly over sees to finally meet my in-laws fund” then the efund. Also I wonder aside from the efund being online and with a different, what would be the difference in just dog earing everything and keeping it in one account. the account we keep the efund in gets the best interest rate. does no one have self control? They only reason I don’t keep all the savings in that account is that some bank fees are waved for transferring money into (and keeping a balance in) a savings account, But I guess it is nice to have two saving accounts one for Emergency and one for the saving for things like plane tickets.

Nice article. Always been a pretty big fan of Dave’s plan and your writings. I do disagree partly with step #3 in that the emergency fund should be an investment. I like your idea of making it an investment, but currently my wife and I like to keep our e-fund in a savings account because of the low amount of income we are bringing in. We are on baby step 2 and having that e-fund ready to access without any penalties is important to us right now. In the future when we have more cash and no debt then I can see us using your strategy because it wouldn’t matter as much to pay the minor fee v.s the inflation loss we are taking by having our e-fund in a savings account.

I was a little surprised to hear anyone (especially on a personal finance blog nonetheless!) recommend placing their emergency fund in an ETF, even a low-risk bond fund. It’s difficult to stomach the low returns right now for standard savings accounts, but the money isn’t there to make money, it’s there for a dire emergency. Can you really count on getting your money out in time if there is an emergency? Perhaps investing say 50% of one’s emergency fund in this way would be a better idea.

I didn’t used to think that way, but this day and age with quick liquidity, having your funds just sit there and erode over the years seems wasteful. It’s more about outpacing inflation than taking huge speculative risks.

If you use a credit card to finance payment for the emergency, you would have between 30-60 days to cash out the funds and receive them to pay off the card balance. You could cash out same day, and a transfer of funds can usually be done within 5 days. Pay off the credit card with the funds, and you’re good to go.

As I said, if your balance is depleted due to market movements, you can replenish shares at a lower price.

I don’t see much risk, but if you want to do 50% cash and it helps you sleep better at night, don’t let my opinion get in the way.

I disagree with you about putting unemployment/rainy day fund in bonds. Interest rates are at historic lows. When rates go up (and they will), bond prices are going to tank. That’s fine if it’s a long term investment.

You might need this money tomorrow not years from now. Also, it’s bad to assume you’ll have extra money to put in if the balance has a significant drop.

In the grand scheme of things, this should be only a small percentage of a person’s overall portfolio; so it losing value to inflation is insignificant imho.

If you save 12 months worth; then I could maybe see putting 25-50% in bonds, but I’d only do short/medium term to minimize impact of interest rate changes.

I agree that bonds can be risky with the impending rate increases. Another option may be putting the money in CD’s with a ladder maturity date strategy. This requires a bit more work than sitting it in a money market fund, but in many cases you interest will be better able to counter act inflation.

Having a six month emergency fund does not have to mean having 6 months worth of liquid funds. One months liquidity up front plus one months’ funds that will be available in a month, another in two months, … up to a month’s assets that will not be liquid for 5 months. Someone could build a five year fund this way that would simply keep rolling over until they are needed, hopefully with no emergency they would be used at retirement.

This assumes that your only emergency is going to be job loss. What is the roof leaks? What if the car breaks? What if the rook leaks AND the car breaks down? What about unexpected medical expenses? This might be a good argument for following the article author’s advice and having a 12 month emergency fund. Maybe half of that could be less liquid, but, especially if you’re a homeowner, you need to have some cash on hand.

The liquidity of a specific number of months is specific to loss of a job. Much like insurance is specific to the type of insurance. Someone with a 30K job and six months of reserves has less money put away than someone with a 90K job and six months of reserves. Yet both have enough to cover 6 months of not being employed. On the other hand, the cost of an emergency is not going to follow someone’s level of income.
The plans to deal with emergencies need to be separate, especially since significant emergencies often result in not working so the 6 month’s reserves would still be used for replacing income.

Years ago, listening to those much older than I was, I heard people talk about how their finances progressed over the years leading to retirement. This is a pattern I saw occasionally. Credit was with specific stores, not general cards like Visa. Each department store and gasoline company had it’s own card and the balance was always paid off each month, except that Christmas shopping might take a couple months to pay off if the couple was young and just starting out. The first car might be on credit but as the couple got older they would save enough so that any future cars were paid for with cash and the trade in. They bought a starter home and later bought a larger home to raise children.

The mortgage was paid off as quickly as possible so when the kids moved out and the home was paid for, the freed up resources all went towards the retirement fund. The empty space in the home might be rented to a boarder to add to the retirement fund. Starting saving at age 50, retirement was fully funded by age 65. The house ownership was important because that eliminated the single most expensive cost of earlier years.

Presents for the wife were often jewelry. Good jewelry has the unique aspect that unlike other gifts it doesn’t wear out and will appreciate in value. If the couple died young, there was lots of jewelry in the estate, if they lived very long, the jewelry paid for the later years.

One thing in common was that most of the people who did this successfully had sufficient insurance.

On Step 4, you’re not correct. I’ve often heard him suggest (and read in one of his books) getting your company match in the 401K first, maxing out your IRA, and then use whatever’s left of the 15% in the 401K.

OK. His elves need to update his site then, b/c he is pretty specific with “Dave suggests investing 15% of your household income into Roth IRAs and pre-tax retirement plans.”http://www.daveramsey.com/new/baby-step-4/

Pre-Tax Retirement Accounts is a term that includes 401K’s. Remember that not all occupations offer a 401K, this does not mean that they do not offer any pre-tax retirement savings vehicle to its employees.

I agree, but don’t forget that the more you put in, the more you will get out. By counting your company match as part of the 15% you are contributing 5% less than those who do not, which affects the amount you have at retirement.

There is no right or wrong answer, I’m just pointing out that someone who contributes 10% plus their matching 5% will have a LOT less at retirment than someone who contributes 15% plus their matching 5%.

Most companies with 401K plans will match you up to 5% while requiring you to contribute (usually) 5% of your pay. That’s a 100% gain from day 1! Who could possibly turn that down if they understand it?

Just food for thought, not saying anyone is right or wrong for what they contribute in their 401K. It’s your money, and your life, so do as you please.

You say “There is no right or wrong answer, I’m just pointing out that someone who contributes 10% plus their matching 5% will have a LOT less at retirment than someone who contributes 15% plus their matching 5%.”

That’s only true if they don’t put that other 5% toward step 5 or 6, but instead burn the money. To your point, they’ll likely have more, but I doubt it would be a LOT more; in fact, if another 2008 strikes then the 5% that would’ve been invested at the peak that was instead put towards a home mortgage would reap larger rewards in the long run.

You obviously have only read the basic baby steps and not actually taken his class because Dave tells you in his class to invest in your 401K as much as your employer will match, then go to the Roth, and then back to your 401K.

It probably is smarter to write about someone’s ideas after you’ve done detailed research, ie: take the class or read the his book, The Total Money Makeover. I saw where you didn’t want to put out the $109 for the class. Don’t forget you can go to the library and check out The Total Money Makeover book.

However, I will also say, that I didn’t want to put out that $109 either, but my husband did, and we got more than our $109 back by implementing the plan. We’ve been working it for five or six years now and live comfortable instead of from paycheck to paycheck.

“If you can’t afford it, they offer “scholarships” which allow you to take it for free.”

You obviously are more interested in trying to make Ramsey look bad than to actually understand what he is saying. I’m just being honest here, you have zero credibility with anybody who has actually studied Ramsey’s plan, and that is an awful lot of people. If you are going to critique his plan as some kind of expert, you really should actually study his plan rather than going off the simplified list.

Dave’s Baby Steps are essentially an outline, especially for the financially illiterate. I’ve listened to his radio show on & off for 4 years and he really gets into the details of his plan tailored for each caller.

I paid off my credit cards before listening to Dave and I did so using the mathematical method vs Dave’s snowball. But I agree with Dave – most of these people are so desperate that they need some quick wins to keep up the drudgery of getting out of debt.

3-6 months of emergency fund – I agree that 6 mos should be your goal, 12 mos is a little extreme when you are trying to save for retirement, kids college & paying off the house. Also, 6 mos of unemployment benefits should cover at least 3 mos home expenses, that gives you 9 months.

GE, I LOVE Dave Ramsey. I think that 50-80% of America would be better off if they followed all of his advice. But that is because 50-80% af America has it’s collective financial head up it’s a$$. There are some incredibly smart people in the world, it just never ceases to amaze me how many smart people are financially illiterate.

I am a huge fan of your website as well as Brave New Life and MMM. I consider these sites to be more in line finacial graduate course and for people who actually have a clue about their finances. Ask 80% of Dave’s listeners what a DRIP is and they could not tell you. They just know that they make $4000 a month and their payments are $4200 and want to know why they cannot make it.

Dave has great advice, but it really is finance 101. It is meant to spoon feed some of the very basic ideas to people who let their lifestyle inflation spin forward ahead of their finacial abilities.

I know you are not bashing Dave and probably feel he is generally helping people. When I talk to people about finacial stuff I usually tell them to listen to Dave and get out of debt as the biggest priority they have in life. Once they get that far, I tell them to start the next chapter in your finacial plan and introduce them the better site like yours.

Dave Ramsey’s Financial Peace University saved our marriage and our sanity. You can disagree with him, but what he says works. It’s been two years since we took the course through our church, and we have managed to not only stay above water and pay off 95% of our debt, but we have also saved money and contributed more towards our retirement funds.

At times it felt like we were trying to turn the Titanic using a rowboat, but the more we worked at it, the easier it got.

It’s fine to disagree, but don’t discourage people from using this system. It does work.

I don’t think he’s trying to discourage anyone from using Dave Ramsey’s method. He’s just adding some color to it from his perspective. Whether or not you agree with the specifics, the overall plan of building an emergency fund, getting out of debt, and saving for your future is the core of what both Mr. Ramsey and Mr. Miller are saying.

In any event, I’m really happy to hear that you and your husband were able to tackle your debt so successfully. Congratulations!

I like your blog too, and I know you are not bashing Dave but come on…the guy brought the baby steps to the world and has probably contributed more than anyone one person has in reducing the national debt. He may live large, but he gives large too. I’m not bashing you either, but this seems a bit tacky. Kind of like taking the 10 commandments and making small adjustments to them and making them your own 2.0 version. From listening to Dave, far too many times people try to make their own rules (I was one of them) that differ from Dave’s and fall off the wagon, so to speak.
Please, don’t underestimate the power of debt snowballng by smaller balance first.

I know this is a little off topic, but I couldn’t find another way to email you. Sorry, I’m an old guy, so bear with me. Our son recently graduated with 3 majors (history, political science and russian) – ha! So now, of course, he’s living at home and delivering pizzas. His goal is to get another job (or two) and save all his $ for law school next fall – (I know! I’ve read all the “don’t do it” articles”, but he’s hell-bent on doing so. Spouse and I are finishing up paying off our house and fully funding our retirement so we are not in a position to help him with law school and I don’t want to see him take out humongous loans. Can you do an article on this? I’d LOVE to hear from 20-somethings that have been there, done that. Thanks much.

About item 3. The money is indeed not an investment, it is a type of self insurance. The goal of insurance is to get the worst possible rate of return – outlive your term life insurance and get no money back, don’t get sick so the medical insurance doesn’t pay out for you, … The insurance is a product that you pay for, just as you pay for food.

People tend to get laid off more when the economy has problems. So if the money is invested then there is a greater likely hood of there being less value when it is actually needed.

Curiously enough, I know someone who only keep 3 months liquidity but at the same time has the longest range backup. For many years he bought bonds every three months so that now every three months some bonds mature and are rolled over. In a financial crises he would simply stop rolling them over. The way he described it, these bonds are his early retirement if there is never a problem and a temporary retirement if there is a problem.

You say “The money is indeed not an investment, it is a type of self insurance.” I agree with what you literally said, but not what I think you MEANT. I read Warren Buffet’s quasi autobiography “The Snowball”, and guess why he likes buying and growing insurance companies… People pay into them, and he gets to invest that money until it’s needed! Sometimes there are huge losses and he has to pay for those right here and right now; that’s equivalent to our 25-50% of emergency savings. The other 50-75% should be invested better than ‘below inflation’; in Warren’s world, that’s life-size train sets, giant soda-pop manufacturers, etc.

I love your synopsis of Dave’s Baby steps. I read one of his books – Total Money Makeover a few years ago, and that has been the single most life changing financial book I’ve ever read. After that, I have a significant distaste for debt. I’m currently in between steps 3 and 4: set to max out my 401k contrib. for first time :). I ascribe to most of his teachings, but not all – I still own a credit card, but I agree with his advice around financing a home (No less than 15 yr mortgage, and no more than 25% of take-home pay).

Your twists on some of his steps resonate with me: The ETF bond index alternative to the emergency fund is one. I’ll still keep the “step 1 emergency fund” as cash (And you’re right, it’s more like $3000 than $1000), but having a credit card to bridge the gap towards liquidating the ETF is added insurance.

I love the thought around having kids pay a portion of their college education. I don’t have kids, but mentor a high school age kid. This is a glaring understanding gap at his age (it may have been true for me as well) – The value of money, and the concept of money as the reward for hard work to the benefit of something in society.

I like one of the earlier comments on funding additional education for yourself if you don’t have kids. Life-long learning a huge desire for me, so making sure you’re able to do that long-term is a good one.

The only revision I’d have on his steps is Step #7. Maybe it’s meant to be a life-style type thing being that far down. But I think it’s important to mark every financially positive step by Giving. The thought of improving one’s self while contributing to society in a positive way is foundational to how I think life should be lived. There’s no better feeling than giving, and it’s great to have that interwoven into any financial improvement plan.

You said in your article that Dave Ramsey doesn’t mention a 401k at all. I would suggest reading his book instead of flipping open the table of contents and taking notes. He says in his book to “first max out your employer 401k” then move on to other investments. Im not defending Dave Ramsey, but it makes you seem like a less credible writer when you dont have your facts straight. Now it seems like you’re just another joe with an opinion

What Ramsey actually recommends is to first take full advantage of the employer match on whatever account(s) they will match, then invest in a Roth IRA and pre-tax retirement accounts (aka 401k/403b). My guess is that he doesn’t specifically mention 401k because many people have other types of pre-tax IRAs like a 403b.

Is he saying to max out the 401k to the 18000 limit, or only to put in whatever they’ll match? Im shooting for the 18000 limit for the 401k, then going to the Roth. You can only put 4500 per year into a Roth.

GE, I was about to chime-in on the 401k matching, but I see some fellow Dave listeners already beat that dead horse. For the rest of the baby steps, Dave has reasoning for each of your concerns. You’ve gotta bring your A-game when you are writing about the most popular financial advisor in the free world! So I recommend reading Total Money Makeover and Financial Peace University, if you can stomach the basic concepts long enough to finish them.
As some others have mentioned, Dave is speaking to the masses, which are financially…challenged. He can not take the stance of recommending credit cards as long as you (audience) are responsible, because everyone thinks they are responsible when they couldn’t be further from it!
Same goes for the Debt Snowball. Dave acknowledges that paying off the smallest debts first is not the mathematically correct strategy. But if people were considering the mathematics of their finances, they wouldn’t be in debt in the first place! His position focuses on the psychology of paying off the smallest amount first and gaining momentum to actually continue and finish.

I love your website, and I visit at least once a day. Your topics are very interesting, and I’ve recommended this site to most of my 20-something friends! I mostly love your conservative views on finances and “stuff.” You are actually similar to Dave in a lot of areas…that’s a compliment.

Not knocking the plans, all sounds good. But what aboutfor the peope who really are making it by the skin of their teeth? I live in a 1br apt, with my “stay at home” wife and “2 year old” kid. All bills are just under 1200 a month, and I make 1350… and of corse that 150 goes to food… my job does not offer any types of benifits… where is the plan for folks like me? And no, the wife can’t work, cause then she would be working just to pay the day care bill. And then shouldn’t even have the bond she does with our daughter…
Again, both plans you guys have work, for people who make a crap load of cash. and seems like all the people who call into the show, all make over 70k/yr… just a little discouraging for us who make under 30k…

Andew, I think the advice would be that you need to increase your income. Some ideas would be to search for a higher paying job, or a second part time job. Maybe your wife could help out another mom who is working by babysitting a few days a week to earn some money. She could also possibly work a few days or evenings (times you are not working and you could watch the baby). Food service/restaurants and department stores have many shifts available and can often be a nice opportunity to make some extra money and get out of the house a bit. I believe there are opportunities out there for you both to contribute to your household income.

There’s a relatively new factor about him telling people to pay off the small loans first. Now that credit card statements have to show how much would be paid in total and for how long, those credit cards with large balances would be a monthly reminder to stop using credit. Being reminded that the cost of a buying a large television with credit could have paid for a car or that a couple meals out removed a vacation from someone’s future might be significant motivation.

I happened into this post when googling for Dave Ramsey, emergency funds and money market. I enjoyed your post and agree with most of your points. DR’s plan is so customizable because it is so vague – that’s a GOOD thing.

Did want to point out, however, that Dave does discuss that 15% retirement contribution specifically in his book, Total Money Makeover. You actually agree with him completely on that note – invest in 401k as high as your employer matches. DR suggests investing in mutual funds after that with your remaining percent. I will say that he has high hopes for returns – he estimates the mutual fund returns WAY too high. He also states to stop all retirement contributions while repaying debt. I disagree completely. In terms of our debt situation, our 401k matches outweigh our interest on our debts.

Again, agree with you on home ownership. We are happy renters and plan on being renters until at least our children go off to college (which we will help with but not cover entirely) or possibly even retirement. As long as you are living within your means, renting can be a great option long term to avoid home owner repairs while still paying less for rent in 30 years than you would pay for the interest on a conventional mortgage.

Dave made his money in the real estate business both the first time around and the second time after his bankruptcy. Not to mention his millions of followers helped buy that garage that my entire family could live in comfortably. However, I’ve read his books and listened to his podcasts. He is definitely a great find for the average Joe American that is sky high in debt due to ignorance and stupidity. A lot of his ‘common sense, vague’ advice is geared toward that crowd I think.

Regardless, glad I found your post – I’m off to read some of your other cheapskate posts 😉

Hi G.E. Miller, I have a question about your comments regarding Baby Step #4 … First, you indicate that one should max out their employer 401K match (agreed … I get that (free money)). Next, you recommend maxing out a Roth IRA contribution, and then coming back to the employer’s Roth or traditional 401k.

Hence, my question … Please help me understand the advantage of shifting to an “external” Roth IRA, before coming back to contribute in ones employer’s Roth/401K. Much appreciated!

I’ll answer this one. Especially since I was in the situation where someone should NOT go to the IRA before filling up the 401K. With an employer 401K, you are limited to the broker that the employer chooses and the limited number of investment choices. On the other hand, when you get an IRA you can choose any broker and any funds. Most of the time you can find a broker where the funds can give you a better return and lower fees. Over the course of your working career the small differences add up.

No my situation for a few years was the opposite. I was working for a large brokerage firm with so many choices I had what I wanted and there was NO brokerage fees and low fund fees. In addition we had access to very excellent advice. No IRA or other 401K ever did so well for me as that one 401K. But this was something like a 1 in 1,000 case.

I went through the Dave Ramsey program and I will tell you why it worked for us. First of all, the debt snowball, paying off the smallest amounts first regardless of interest rate gave us the incentive and success to keep going. This is reality in America. We paid off our bills a ton faster so we ended up saving alot on interest.
We saved 1,000. Yes this is not much and we were lucky not to need to dig in it but we worked our tails off and sacrificed to pay our bills. In 7 years we paid of
4,000 credit card
6,000 credit card
7,000 school loan
18,000 credit card
150,000 in student loans
We are now working on paying down our house. We could not have done that if it wasn’t for his program. Unfortunately had kids in college already but they are now working and doing fine on their own. We have a ton of money that we put on the credit cards/loans below that we have now to invest… You need to start somewhere and when you are that much underwater it takes something simple like a snowball method to get it started…

There are different routes for everyone to get to a better place. Dave happened to be out there with sound principles, even though you can argue with them.

I agree with you about having a larger emergency fund.

Dave does on his radio show now, tells you to fund your 401k up to the employers matching fund and then put it in the Roth IRA. That is nice, but has anyone talked about the fees of the IRAs? On a recent PBS Frontline ( http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/ )they talked about this in depth. It seems like some of us could have much larger portfolios if we investigate further, but who knew this stuff????

My employer says having a home paid for is like having a shoebox full of money under your bed. What is it doing for you? He suggested that if you did pay off your home, then reinvest part of that idle money into a property and build equity and hopefully the value grows, too. Even in a down market, acreage around my town is still selling for 15k per acre-ten years ago it was 3k per acre.

Dave doesn’t like credit cards, however, if you become the well trained and budgeted, you can get a card that pays you back on all of your purchases. 4-5% ??? That could be a few “free” hundreds of dollars at the end of the year. Just religiously pay off your balance and stick to your budget and grocery list!

I will leave you with this. If Nashville is my designation, there are several routes from my home that I can choose to travel. some may be faster, some may be safer or more scenic, it just depends how you want to travel. One thing is for sure, my money isn’t arriving at Dave’s house.

Don’t really understand how this is the “better version”. A lot of this is the exact same information that Ramsey preaches.

For example, if you read into Ramsey’s step #3, and not just look at the description, you’ll learn that taking your employer’s full 401k match is the first thing Ramsey suggests you to do. Ramsey teaches to devy up your 15%, starting with matching 401ks, then to mutual funds, other counts, etc.

Miller says “Ugh. This is the perfect example of over-simplifying with what sounds like a solid rule and making it a general rule for everyone, to their detriment.” Give me a break, bro! You didn’t even read into Ramsey’s principle here, and if you did, you misrepresented his material as your own! Not cool.

Miller also says, “Dave does not mention 401K’s at all in any of his 7 baby steps.” That’s certainly not true. Ramsey is very clear that Roth 401ks are the way to go as you take the pre-tax benefit. This would fall under “Pre-Tax Retirement” in step #4. RAMSEY MENTIONS IT. A LOT.

If you want you finances to be average, do what the average person does. If you want your finances to be extraordinary, you must take extraordinary measures. You COULD rely on luck to do it for you, but if you want guaranteed success, you have to use a guaranteed plan.

If you spend all your money, it’s a REALLY safe bet you’ll be broke. If you save your money, and spend wisely, it’s a REALLY safe bet that you’ll have money.

Another slight correction. If you dig a little deeper Dave essentially says that steps 4, 5, and 6 are happening simultaneously. Although now he does list them in order of priority. He says you shouldn’t save money for kid’s college until you’re funding your retirement because college is a luxury (something with which you seem to agree). Also the priority of college is going vary on circumstances like do you have kids and how old are they. If they’re 17 and they’re going to college then saving for college is more urgent than paying off the house unless you’re going to let them pay for it on their own (and of course Dave would say not to co-sign on student loans).

You’re kind of reading more into a lot of the steps than is really there. He does kind of encourage people to buy houses sometimes but baby step six doesn’t say “go buy a house”. It’s says pay off your house [if you have one]. He’s got very specific guidelines when it comes to house-buying that set a fairly high bar (20% down and 15 year mortgage that is less than a third of take-home pay).

Another note, part of the point of the 1,000 emergency fund is to make you feel uncomfortable so you work your bum off to finish baby step 2. Whenever you hear him talk through specific situations on the radio, none of the rules are completely hard and fast. If you think you’re going to lose your job or move or have a baby (or maybe if you have a family of six) he totally supports saving up extra for a short time and then paying off.

People who really need strict guidance will follow his rules to a T. People who feel a little more confident (hopefully justifiably) in their financial management skills will fudge it. I already had more than 1,000 saved so I kept that, though I eventually used it to pay off my loans completely before saving up again. And I do have family and friends such that if I get fired I won’t be living on the street. I also use credit cards and pay them off every month. I’ve been using them since college and never carried a balance. Dave sets out the goal posts and people can decide for themselves where they want to deviate.

Finally, dead horse, but you don’t even have to dig on the 401k thing. A 401k is “pre-tax retirement.”

Anything that fits into six sentences is going to be dumbed down. There’s plenty more depth for anyone willing to read more.

Paying off your home mortgage is not a good investment decision. If you do the math, the leverage you get from a having a home mortgage turns a home into a great investment.

Ex. I bought my home for $100,000 using $25,000 downpayment and a 5% APR mortgage. My home value rose 2% in the first year to $102,000. I took the $75000 I could have spent paying off my mortgage and invested it in the stock market. My return there was 8%. My investment return can be calculated as follows:

Increase in home value: $102,000-$100,000 = $2000
Interest paid in first year (approximate): .05*$75,000
Increase in value of stock holdings: .08*75,000
Total money invested (including home equity and stocks): $25,000 + $75,000

This is return is twice the return I would have received if I had paid for my house in full. My return would have been 2% (the increase in value of the home).

I don’t understand why you and Dave Ramsey are advising people to pay off their mortgages. It’s not a good investment decision. I suppose it might make some people happy to pay off their mortgage since it one less thing for them to worry about. It is not a good investment decision though.

^ the increase/decrease in house value will happen independent of whether there is a mortgage or not.
^ the minimum equity in the house should not be factored in the comparison, since you are keeping that in the house in both scenarios.
^ 8% / 5% is quite high today – should probably be a couple pts lower for each.

– largest factor, you ignored risk: unless you have quite the inside track, your 8% will take more risk than your 5%

Then I would ask myself – Is my guaranteed return of ~$3k/yr and less availability of funds, worth the risk of my other investment option(s)?

EMOTIONAL

The reason why Dave and others advise mortgage is because they factor human behavior. Generalizing, most people don’t separate the emotions from investing / purchasing. ex: The average person would be much less likely to spend $2k on an upgraded vacation/car or other discretionary expense if they only had $5k in their bank account vs $80k.

Same idea as when people are happy they get a tax refund in the Spring. I (and I suspect you, Stephen) wouldn’t like it, because Uncle Sam had the interest-free use for that money. Some people use it as a forced method to save, because they know they will spend it if they have it.

The strategy of paying down the mortgage is for the people who need that forced discipline, which is likely going to be a majority of people seeking Mr. Ramsey’s help.

It’s pretty obvious you haven’t REALLY studied what Ramsey says. You over-simplify his steps (ironically). In at least one case you actually “corrected” him by saying exactly what he says in his course. [Step 4] Why don’t you take his FPU course, THEN critique it?

A. If you can’t afford it, they offer “scholarships” which allow you to take it for free.

B. Either way, you’re critiquing something that even a casual Ramsey follower can tell you really don’t know what you’re talking about.

I do appreciate you are trying to do a good thing and maximize people’s financial status. You’re trying to improve upon his plan, nothing wrong with that. But, unless you really study his plan then this blog post is not a helpful critique. It’s not even accurate. It comes across as you’re looking for a (verbal) fight rather than genuinely understand his plan.

If you take his course and revise this with an accurate portrayal of his method, and your response to that, please email me or reply here. I’d love to read that as I’d like to tweek my financial plan as appropriate.

BTW, although your 1-3 steps miss the spirit of what he teaches, I’ll give you your points that you make. But, 4, 5 and 6 you really need to go back and see what he says about those because you got it wrong. Again, he goes into detail in the FPU course.

I have to add that if you don’t want to pay (as low as $93 actually), simply listen to his program. Additionally, there is nothing wrong for someone to make money. But there are loads of ways to learn about his program in more detail for free vs. taking the class. Never took the class, but am now debt free having just finished paying off $160K+ in consumer debt last month.

In your alteration of baby step 3 you mentioned a 12-month emergency fund in a ETF. But even something ultra conservative has risk. Couldn’t a bond fund drop low enough to lose money lower than the 12 month period at the same time you lose a job or have an emergency? Aren’t you inviting risk into an area where safety is required? I would love my money in a bond fund so can you help explain your rationalization here please? – Bruce

If your position drops below a level where you are comfortable with, you can add to the position and benefit on a recovery. 12-months is almost twice the normal recommendation, so even if your fund lost half its value, you’d still be in the same place as if you had saved a 6-month emergency fund.

Would you please explain a bit more about your bond fund? If the principal drops from 12 to 6 months then that goes against your point of a 12 month fund. Would you please share some more reasons to have this money in a slightly risky investment and chance the loss of principal when this money needs to be protected for an emergency?
I really love this article and agree with every other point you make. I hope to learn more about your reasoning for this point. Thanks

Risk is a matter of perspective. Just as your fund could go down 50%, it could go up 75%. The only thing that is guaranteed is that if it is not invested, it will lose about 3% of its value every year due to inflation. In my opinion, that is risky. Why not put your money to use and if the fund drops, backfill it so you can gain on a recovery?
It’s one point of view. If you’re not comfortable with the risk, then don’t do it. Maybe one of these days, interest rates on CD’s/money market will return to levels where it makes sense to put it in them, if you’re not comfortable with more risk.

His plan is excellent in comparison to no plan at all. It is designed to appeal to the masses, but is not personalized for individual circumstances.

If you are willing to take parts of his advice and personalize it to your particular situation, that is going to serve you better.

A couple older than 30 with zero retirement savings should not prioritize debts with low interest over starting that IRA, otherwise they miss out on all of the most important compounding years. Or a family with children, $1000 in savings is SCARY low. I would say at a bare minimum, depending on where you live, $1000-$1500 per family member. So a family of 4 around $6000 until they can sock away the 6 months to a year of living expenses. This is for just security purposes – an illness, a flood, your HVAC needs to be replaced (if you own).

While cutting expenses, you need to be wise about insuring your life. If you rent, you NEED renter’s insurance. If you cause a house fire and lose everything, the owner’s policy will not cover you and you may be on the hook for some damages. People don’t think of these things. And life insurance especially if you have a spouse and kids.

A lot of the goals need to just be balanced with each other. You can start retirement savings while also paying down debts. I also disagree with saving for child’s education. I paid every cent of my own education and wouldn’t have it any other way. I have known far too many kids piss away their college years and get useless degrees because someone else was footing the bill. The best gift you can give your children is the ability to provide for yourself in your retirement so they are not figuring out a way to pay your expenses while starting their own life.

Hello, I know this article is old but I actually attended Dave Ramsey’s financial peace university and he does teach to take advantage of your employer’s match for 401K. I can tell you haven’t attended financial peace university because everything you mentioned he covered in depth in his class. You are making assumptions about his baby step plan without knowing all the facts. Unless your financial situation looks like his how can you say he is wrong about anything? This is the plan he followed himself to dig himself out of a bad financial situation. You should be taking notes

Not to say that this is a bad article, but it is worth noting that you might not listen to Dave on a regular basis enough because some of your “issues” are regularly addressed. For one, on retirement he has an order of things and the first thing is to always get your employer’s match. Preferably in a ROTH 401k, but if that isn’t available, whatever plan they have. Then you go to a Roth IRA, and back to your company’s plan, etc., etc. So it is addressed. I can’t tell you off hand the exact order, but I’ve both read it and heard it. So you may want to search it out. He also talks about saving for kids college funds is based on individual situations. I will admit that his books don’t have the space to address all of the multiple caveats there are, but they are addressed on a relatively regular basis on his program when the calls come in. Lastly, the I just have to disagree on the paying highest interest rate. Sure, you provided a caveat, but if I had to wait to pay off my $10K credit card bill because it had a larger balance than a lower interest rate, I would have killed myself. If is about little wins – he regularly says that it might not make sense mathematically, but if we could do math, we wouldn’t be in this situation. We just finished paying off over $160K in consumer debt in just about 5 years and 10 months. Near the end it was difficult to wait until the next bill was paid off, but imagine if I had done that in the beginning?!?!? I know that you addressed it some, but there is a reasoning behind it. I’m to cheap to have ever taken his Financial Peace University class, but I see that a recent commenter had and says that many of your concerns are addressed in that class. Like a said, not a slam on what you said, but some clarifications. 🙂

I’d never heard about David Ramsey until I was FI (I didn’t even know I was FI so it kind of makes sense). I still don’t know much about the guy (this is only the second post I’ve read, all of which have been today) but I have a real personal problem with #5.

For the past 6 years, we have been maxing out our kids RESP account (we’re Canadian). I was drawn to the free money part (Government contributes up to 20% with a certain maximum). Fortunately, the account has done really well and now there is enough money in the account to fund one child away from home or two at home ones. So what’s the problem?

1. Our retirement. Our contributions alone (without growth over 6 years) would be making us $1,500 a year in dividends (net). It’s not going to make or break us but it would bring us over $10,000 as an annual surplus and that would be a little extra security (always worried, even when I don’t need to be). Note that we didn’t realize that we were FI until 1.5 years ago and have since stopped all contributions.

2. Tax implications. If our kids don’t go to post secondary education (possible), my husband and I will have to pay fines and absorb the income. The income wouldn’t be to bad if we had RRSP room but of course we’ve maxed that out too (I’ll save that problem for another day). In the end, we will be paying tax again (as our original contribution was net income) plus fines. Our asset has turned into a liability. Kids had better go to post secondary education (kidding, kinda).

If I knew then what I know now, I would have contributed 50% of what we did to their educational fund and (virtually) set aside money in our investment accounts for their education. My husband and I can each earn ~$50,000 in dividends without having to pay much (if any) taxes and less worry.

I’ve read enough comments on FI blogs to know that the trolls won’t have any sympathy for me but I did what I thought that I was supposed to do (defer taxes, free money) and in the end, I’ll likely pay more taxes because of it. Note that I am not from the camp that believes that it is a privilege to pay taxes.

Financial plans are so individual and can change in a minute so I guess you have to do the best you can with the information you have at the time. I have no regrets about saving money, just where I chose to save it.

Paying off a mortgage ASAP sounds great (and is for some people) but I would MUCH rather have $300K in investment portfolio/emergency fund savings than a home worth $300K. My home is shelter. Stocks and bonds are investments. Yes, stocks/bonds go up and down but so do home values (remember the 2008 housing crash). People were out on the street as a result and many areas still have not fully recovered. That was nearly 10 years ago! My investment portfolio dipped during the financial crisis but recovered and SOARED just a couple of years later. My piece of mind and confidence are with the stock market because even when it dips significantly, investors all over the world still know that the U.S. is the best place to invest money long term. And they pour trillions of dollars into the big 500. Result: the U.S. stock market always bounces back….most times significantly. Ain’t no better investment long term in my opinion. Cash rules!

#1 Emergency fund — If I have no debt and no savings, should I borrow $3,00o on a credit card to create the emergency fund? Assuming you will say “no,” please explain the difference between that and keeping $3,000 in credit card debt while I build an emergency fund.

I had this fight with my wife for years because she felt more secure with a bigger savings account and didn’t mind paying double-digit interest on the credit cards. I wanted to put everything we had to pay off the debt and TRIED to make sure we paid off all new credit card purchases every month. I finally gave that up, took all the credit cards, gave her a debit card and put her in charge of paying bills every month. That ended the arguments because she made all the decisions and she understood that if she over-spent the debit card she would start bouncing checks. To this day I can’t believe how well that worked!

I totally agree with making the first baby step be saving $3,000 which is what my husband and i did and with the home repairs that popped up we are now at $2,500 which is still good and enough to cover if something else goes wrong. If we only had $1,000 it would not be sufficient.

Thanks for the other tips as well! We will be looking as we progress with this system.

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